SAB tells its side of distribution story
“THE competition law is not there to penalise size, it’s there to penalise inappropriate and unlawful conduct,” said Norman Adami, chairman of SA Breweries (SAB), this week in a case in which South Africa’s most successful global company stands accused of anti-competitive behaviour. The outcome will be critical for SAB, which accounts for over 3% of national GDP of between R50bn and R60bn, and provides 350000 jobs. If it loses the case at the Competition Tribunal, it might have to change the way it distributes beer to rural areas, and add R1.5-billion to its costs.
SAB sets a maximum price at which these distributors may sell and imposes strict standards, such as requiring them to deliver to all licensed outlets in their territory. In return, the distributors are paid a fee, which works out to an effective 7% discount on what they deliver.
But the Competition Commission is arguing before the tribunal that all retailers and redistributors that buy more than 16 pallets of beer (1000 cases) should be given the same 7% discount by SA Breweries, although these other companies do not perform the same functions or have the same obligations. The commission says the fee SAB pays is “’price discrimination” against smaller independent retailers and distributors.
SAB rejects this, saying that giving such a discount to everyone would cost the company R1.5bn. That would lead to a drop in service levels, fundamentally undermine its business model, and ultimately lead to an increase in the price of beer.
There is another option: SAB could eliminate these distributor deals and create “depots” -which is how it operates in the rest of the country -from which retailers could buy their products. Why is SAB fighting the case so hard if in effect it could flick the switch and create depots?
“The business model would continue if appointed distributors were eliminated but what we would lose is the empowerment opportunity and employment in rural areas. It would result in the unnecessary destruction of value to largely black-owned appointed distributors,” said Mr Adami.... Read the full, comprehensive news article and discuss at Business DaySimilar Stories